Discharge Of Personal Guarantees: NCLAT's Interpretation Of Resolution Plans

Discharge Of Personal Guarantees: NCLAT's Interpretation Of Resolution Plans

Introduction

The National Company Law Appellate Tribunal (NCLAT) delivered a judgment in the case of Indian Bank vs. Anjanee Kumar Lakhotia and Ors. A corporate debtor, MBL Infrastructure Limited, was admitted to the Corporate Insolvency Resolution Process (CIRP) in 2017.

Factual Background

Anjanee Kumar Lakhotia, the suspended director and personal guarantor, submitted a resolution plan that was approved by the National Company Law Tribunal (NCLT) and later by the NCLAT and the Supreme Court. The plan included restructuring of debt and modification of security interests.

Procedural Background

The resolution plan was approved, and a fresh guarantee was executed as part of the plan's implementation. Indian Bank, a dissenting financial creditor, initiated proceedings against Lakhotia as a personal guarantor, contending that his personal guarantee remained valid.

Issues Involved

1. Whether the approval of the resolution plan extinguished the personal guarantee given by Anjanee Kumar Lakhotia.

2. Whether the fresh guarantee executed as part of the plan's implementation affected Lakhotia's personal liability.

Contentions of the Parties

Appellant’s Contentions: Indian Bank argued that Lakhotia's personal guarantee remained valid despite the approval of the resolution plan.

Respondent’s Contentions: Lakhotia contended that the fresh guarantee executed as part of the plan's implementation effectively extinguished his personal liability.

Reasoning and Analysis

The NCLAT scrutinized the specific circumstances of the case and held that the personal guarantee was effectively extinguished when the fresh guarantee was executed. The tribunal distinguished this case from general principles established in other cases, citing the unique facts and circumstances.

Final Decision

A bench composed of Justice Ashok Bhushan (chairperson), Technical Member Barun Mitra and Technical Member Arun Baroka concluded that Indian Bank could not initiate personal insolvency proceedings against Lakhotia. The appeal was dismissed, upholding the Adjudicating Authority's rejection of the application under Section 95(1) of the Insolvency and Bankruptcy Code. The judgment was pronounced on

Law Settled

The NCLAT's decision provides clarity on the effect of a resolution plan on personal guarantees, emphasizing the importance of specific circumstances in determining the liability of personal guarantors.

In this case the appellant was represented by Mr. Amod K. Dalela and Mr. Pradeep Pandey, Advocates. Meanwhile the respondent was represented by Mr. Arusuya Salwan, Mr. Rachit Wadhwa, Mr. Abhijeet Sinha, Sr. Advocate with Ms. Shweta Dubey, Ms. Kanishka Prasad, Mr. Sumit Sinha with Mr. Roshan Lal Jain, Advocates.